Why does everyone say inequality is falling, when it's rising? Because they're only counting incomes, not all wealth (property, pensions, etc.)

Inequality has reduced!

No it hasn’t.

Yes it has! I heard Dimbleby say it on Question Time. And the Lefties all nodded solemnly.

“...the statistics show the gap is narrowing” David Dimbleby 2nd February 2017

That’s because they‘re all clueless.

Never!

They don’t realise they’re only talking about income inequality, not wealth inequality.

What’s that?

Wealth inequality measures all your assets – property, shares, pension pot, that sort of thing.

You mean the really big numbers.

Right. Income is just what’s going into your bank account – pay, dividends, pension payouts, and the rest. Net Income – what they’re referring to when they talk about income inequality - is all that after benefits and taxes have been added and subtracted.

Let me guess. Wealth inequality has risen?

You win a free Question Time T-shirt and nodding duck pencil sharpener. Generally, asset prices have continued to recover since the bank crash, but the poor hardly have any assets!

So the gap between rich and poor continues to rise.

Yup.

And what of the gap between Dimbleby’s ears, and the ears of every card carrying leftie who hasn’t bothered to use this shocking fact that would make every working hour of their lives so much easier?

Hmm. No official data on that one. Looks like the Office for National Statistics needs to tear itself a whole new index.

The background data

Wealth inequality is almost twice that of income inequality. The overall Gini coefficient (the official measure of inequality, where 0=minimum and 1=maximum) for net income is 0.34, while that for total wealth is 0.64.

Institute for Fiscal Studies: "Household Wealth in Great Britain: Distribution, Compositionand Changes 2006–12" 

HRP = age of household reference person

Wealth in Great Britain is even more unequally divided than income. The richest 10% of households hold 45% of all wealth. The poorest 50%, by contrast, own just 8.7%.

 

Equality Trust: The Scale of Economic Inequality in the UK

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

Wealth inequality is rising. The ONS report says: “In July 2012 to June 2014, the wealthiest 20% of households had 117 times more aggregate total wealth than the least wealthy 20% of households. In comparison, the wealthiest 20% of households had 97 times more aggregate total wealth than the least wealthy 20% of households in July 2010 to June 2012.”

It goes on the explain: “Figure 2.10 shows the median household total wealth by the levels of household net equivalised income. Households in the lowest band of income had the lowest median household total wealth, while those households in the highest income band had the highest. During July 2012 to June 2014, households in the lowest income band had a median household total wealth of £34,000 while for the highest income group that was over 26 times as big, £225,100. Between the 2 survey periods shown, the median value for those in the lowest 3 income bands fell, whilst the median value of household total wealth increased across all other income bands. The median value of household total wealth fell the most in the lowest income decile, with a 38% fall seen between July 2010 to June 2012 and July 2012 to June 2014, and the largest increase was seen in the top 2 income deciles, with a 19% increase in the median value seen over the same period.”

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

The South East’s median household total wealth (£342,400) is over twice that of the North East (£150,000). It's another sign of the growing divide between the south and the rest.

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

The poorer regions have got poorer. Yorkshire and The Humber saw a fall in median household total wealth of 8% between July 2010 to June 2012 and July 2012 to June 2014. Smaller falls were also seen in the West Midlands (2%) and East Midlands (1%).

Office for National Statistics: Total wealth, Wealth in Great Britain, 2012 to 2014 (Chapter 2)

Even income inequality is on an upward trend, when you include housing costs: essential costs like rent or mortgage interest, water charges, insurance premiums, and service charges. This is important as such costs can hardly be avoided. The Resolution Foundation report says “Looking at the 90/10 ratio, income inequality before housing costs peaked in 1991 and has been largely flat or falling since then. But after housing costs, this ratio was higher in 2014-15 than at any point in the 1980s or 1990s.”

Resolution Foundation: Living Standards 2017

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Bank of England director explains why broke Britain is broken. Is anybody listening?

In his first tweet after being sacked as Chancellor of the Exchequer, George Osborne chirped "Others will judge - I hope I've left the economy in a better state than I found it".

It so happens two weeks earlier the excellent Andy Haldane, executive director at the Bank of England, made his judgement. The date is important, as Osborne was still sitting confidently on his stool in the Treasury, so Haldane wasn't simply knifing a political corpse. Haldane was speaking truth to power, as so many others who should be doing so had long since ceased.

Haldane's speech in June 2016, titled "Whose Recovery?", should be essential reading in particular for the revolting Labour MPs. The speech offers them an insight into why the ordinary Labour Party membership backed Jeremy Corbyn. And why the Labour Party actually is a party of protest, both in Government and in Opposition. 

 

The Golden Rule states "Whoever has the Gold makes the Rules". Whether in Government or in Opposition, the Labour Party should represent those without the Gold, and should act as a counterbalance to those who make the Rules even when it is in Government. Because when the Labour Party was not a party of protest, it became the de facto Tory Party (a.k.a. "New Labour"). In truth, had Tory leaders during the Blair years been brighter they could have more quickly undermined Blair by supporting, not opposing, his policies.

Britain needs strong parties of all complexions, from left to right. Regime change in the Tory Party is done with ruthless corporate efficiency, while in the Labour Party it is done with all the blood and broken noses of a pub brawl. Both methods are fine, so long as both emerge representing their members.

Haldane, a product of state school and redbrick university, whether he is in an oak panelled room or in a whitewashed community centre listens to what he hears and  he sees what he looks at. Listening and seeing are talents sadly missing in the revolting Labour MPs. 

In his speech Haldane says:
"I began by speaking about the UK’s economic recovery.  I never got as far as the improvement in the jobs market or surging confidence.  I was stopped in my tracks by a forest of furrowed brows and a phalanx of probing questions, not all of them gentle.  “What exactly do you mean by recovery?” one asked.  “My charity is dealing with 50% more homeless people than three years ago.”   Every other charity in the room had similar stories to tell.  Whether it was food banks, mental health problems or drug addiction, all of the numbers were up.  The language of “recovery” simply did not fit their facts."

We leave it to Haldane to explain whether Osborne left the economy better than he found it, and why ordinary Labour Party members support Jeremy Corbyn:

1) Haldane points out that the UK economy as a whole can improve by making the rich slightly richer and the poor much poorer:

2) Regional income inequality has widened.
Haldane says:
"Another notable pattern in regional income gains and losses is that the largest gains have come in regions where income was already high – London (incomes more than 30% above the UK average) and the
South-East (14% higher). Contrarily, some of the larger losses have been in regions where income was already-low – Northern Ireland (18% lower than the UK average) and Yorkshire and Humberside (14% lower). Put differently, since the crisis the regional distribution of incomes has widened."

3) In recent years the rich have been given more and the poor have been made poorer. Haldane says: 
"in a subjective well-being sense, there may have been no recovery in the UK over the past few years". 

He states:
"aggregate GDP figures may over-state somewhat the impact of the recovery on societal well-being: gains by the already-rich boost well-being by less than equivalent losses by the already-poor. To demonstrate that, Chart 12 plots an illustrative measure of “social welfare”. "

3) The recovery from the 2008 recession has been the slowest in decades:

4) By 2015 GDP per person was only 1% above pre-crash levels.

5) The GDP figure includes all UK income, including that which is sent overseas. Office for National Statistics figures show over half of UK quoted shares are owned by the 'rest of the World'. Illustrating how boosting company profits by holding down wages isn't good for Britons.

% of UK stock market owned by "rest of the World"

Haldane states that in terms of GDP per head that is actually kept in the UK there has been no recovery:

6) The "jobs recovery" has not been a "wages recovery". Noting that more people are in poorer paying jobs, Haldane states: 
"Although the recovery of the past few years has been jobs-rich, it has been notably pay-poor."
Haldane goes on to say:
"This is the longest period of flat or falling wages since at least the middle of the 19th Century". 

7) Bank of England and Office for National Statistics figures for 2015 show that in fact only London and the South East have passed their pre-crash peak. Haldane says:
"For example, in Northern Ireland GDP per head remains 11% below its peak, in Yorkshire and Humberside 6% below and here in Wales 2% below."

8) When it comes to Wealth, Haldane says:

"If we turn from income to wealth, the picture is much the same...This has risen across all regions. But the pattern is again uneven, with the largest gains in London (47%) and the South-East (25%), whereas in Wales the gains are smaller (8%) and in the North East there has been a small fall in wealth. 

"..these gains have come principally from rises in property and pension wealth. In other words, the gains have been skewed towards those in society who own their own home or who have sizable pension pots."

Andy Haldane says in this speech:
"The rising economic tide has not lifted all boats. Indeed, a sizable fraction of households have seen no recovery in their disposable incomes, a rise in job insecurity and at best modest rises in their wealth. For them, the “recovery puzzle” may not be so puzzling. These data also suggest that distributional factors may be important when understanding “whose recovery”. "
 
"This has been an uneven economic recovery, looking across regions, income and age cohorts. Large parts of the UK – many regions, those on lower incomes, the young, renters - have not experienced any meaningful recovery in their incomes or in their wealth."

The revolting Labour MPs desperately hope to cling to their well compensated jobs. The poor things have invested years sucking up to one set of leaders, only to find them chucked out and replaced by Jeremy Corbyn of all people! Probably Corbyn has so little support among the MPs because nobody had bothered licking their spittle onto him.

Labour MPs need to emulate Andy Haldane. Instead of cloaking themselves in self-importance, convinced that only they can "save the Party", they need to go out and see what they look at, and listen to what they hear.  


Labour MPs must stop peeping out of the windows of their Westminster Chambers, demonising their own party members. 

Instead of plotting engrossed in their Westminster mutual admiration society, they need to understand the reasons why Labour Party Members around Britain overwhelmingly supported Jeremy Corbyn.

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Osborne is using pension taxes as a “milch cow” to pay off the deficit. New rules will net him an extra £5bn

KJ, Chris and Fee come to terms with it all...

SOURCE GUARDIAN: Pension taxes are 'milch cow' for chancellor, says IFS head

George Osborne is using pension taxes as a “milch cow” to pay off the deficit, the head of the Institute for Fiscal Studies has said. The chancellor is expected to announce the results of a Treasury inquiry into tax on pensions in the budget on 16 March. Among the changes being considered is the replacement of variable tax relief on pension contributions with a single, flat-rate of between 25% and 33%, which would cause high earners to lose some of their rebates. Paul Johnson, director of the leading independent thinktank the IFS, said: “The tax regime has been changed and changed again as pension savings have proved something of a milch cow for the current chancellor. “By reducing the amount that can be put in a pension free of tax in any one year and the maximum size of the accumulated pot, he has increased tax revenues by more than £5bn a year.” Johnson said changes to pensions tax relief could cause “the implicit contract at the heart of our pension system [to] buckle under the pressure”. “Governments of all stripes have recognised that widespread access to good private pensions is an essential part of the implicit deal with the voter — we won’t pay you much of a state pension, but we will make sure you have the chance to save for yourself,” wrote Johnson in the Times. “And at the heart of that deal has been the tax treatment of private pensions. It should go without saying that nobody would tie up hundreds of thousands of pounds in a pension, which they can’t access for decades, if there weren’t some benefit for doing so compared to saving in some other way. That benefit is tax relief.” Former Conservative leadership hopeful David Davis told the Times that such a move would deter people from providing a full state pension for themselves. “It’s problematic because the pension industry used to be the jewel in the economic crown when it comes to having a population looking after themselves.”

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Figures reveal Tory promises of a "Low Tax, High Pay Economy" has actually meant higher taxes and lower pay

Poverty is a matter of definition. Which means two of the ways of reducing poverty are:

1) Increase poor people's incomes

2) Change the definition of poverty 

The Tories were quick to notice that one of these poverty alleviation strategies is easier, quicker, and cheaper than the other. And were quick to start fiddling around with definitions.

In 2013 the UK government changed the definition of 'fuel poverty'. According to the CarbonBrief blog, that comments on Climate and Energy Policy:
"The Department of Energy and Climate Change (DECC) has changed the way it defines fuel poverty - seemingly lifting two million households out of it in the process. "


In 2015 Iain Duncan Smith confirmed plans to redefine Child Poverty. His ministry stated:
"The current child poverty measure – defined as 60% of median income – is considered to be deeply flawed and a poor test of whether children’s lives are genuinely improving.....The government will bring forward legislation to correct that with new measures focused on levels of work within a family and improvements in education attainment"

It's not just Poverty. Disability is another matter of definition. In 2013 the Tories 'cured' thousands of disabled people by redefining 'disabled'. Before you could claim certain disability benefits if you could not walk more than 50 metres. This was reduced to 20 metres, at the stroke of a pen converting all those medium distance 21-49 metre walkers from disabled to abled.

It's not just Poverty and Disability. In 2015 George Osborne put everyone, sort of, onto a 'living wage' by redefining the 'minimum wage' to the 'national living wage'. A wheeze that got IDS jumping for joy, if not those on minimum "national living" wages.

And it's not just Poverty, Disability, and Living Wages. You may have though 'Higher' and 'Lower' are pretty unambiguous. But in Conservative Britain you would be wrong. When the Tories boast about creating a "Low Tax, High Pay" economy, it escapes enough people for the Tories to win an election that low tax has meant higher tax, and high pay has meant lower pay. The Tories appear to have redefined "Higher" to mean "Lower", and "Lower" to mean "Higher":

a) "Low Tax" has meant taxes have actually been Higher each year since the Tories took Downing Street in 2010 (according to Adam Smith Institute figures). The Tories have not been cutting taxes, they have been hiding them. When announcing Tax Freedom Day (the number of days earnings it takes you to pay all your taxes) for 2015 the Director of the Adam Smith Institute, Eamonn Butler, said :
"The Treasury hates Tax Freedom Day, because they don’t want us to know how much tax we really pay. They prefer to conceal the tax burden through stealth taxes and indirect taxes that we don’t even realise we’re paying."

b) "High Pay" means the average pay of working people is still Lower than seven years ago, at the 2007/08 banker bust (from Office for National Statistics figures):

You can't really blame the Tories for taking the opportunity to pull the wool over voters eyes if voters are so easy to befuddle.

Actually, you can.

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Osborne’s new rules allow you to cash in your annuity pension pot any time you like

SOURCE: A report by the Centre for Research on Socio-Cultural Change (part of the University of Manchester and the Open University) observed: "the remarkable result is that under Mrs Thatcher from 1979-90, just as under Tony Blair from 1997-2007, the real value of Housing Equity Withdrawal is larger than the real value of GDP growth"

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Graphs at a Glance: Spending our property wealth led to the economic crash in 2008. What will spending our pension pots lead to?

Dickens' fictional optimist Mr. Micawber stated the secret to his happiness was to have an income larger than his expenditure. 

Dickensian optimistic fictionalist George Osborne devised a way to dodge this restriction of income threatening to stand in the way of his happiness. 

George conceived a way to lower our incomes (low pay recovery and welfare cuts) and yet increase our household expenditure (which since 2012 has been the basis of GDP growth, and therefore the foundation of Osborne's credibility and thus his happiness).

In March 2015 the Office for National Statistics (ONS) commented "following recent trends, quarterly growth was largely driven by stronger household spending". Helped in no small extent by consumers spending the £20billion paid in compensation by the banks for their Payment Protection Insurance scam. The ONS graph below shows since 2012 household spending (labelled HHFCE and NPISH) has been the one consistent bedrock of GDP growth in the UK.

In the same month, the Office for Budget Responsibility (OBR) reported that gross household debt was heading back to levels last seen just before the 2008 banking crash. A crash which had as one of its central causes excessive household debt.

And another graph from the “Budget 2014: Background Briefing”, produced by Parliament's impartial House of Commons Library showed how consumption had been rising strongly in recent years despite falling real wages.


Osborne's big idea to get households to spend more without any more income, was that we should spend our assets!

This isn't a totally new idea. Britons have two great stores of assets: our homes and our private pensions.

In the period from 1979 up to the 2008 Banking Crash Britons were helped to withdraw and spend their housing wealth. Data from the Bank of England shows how Home Equity Withdrawal (HEW) boomed following the Tory victory in 1979, and more so in the years of the Labour government leading up to the Credit Crisis:



A report by the Centre for Research on Socio-Cultural Change (part of the University of Manchester and the Open University) observed:

"the remarkable result is that under Mrs Thatcher from 1979-90, just as under Tony Blair from 1997-2007, the real value of Housing Equity Withdrawal is larger than the real value of GDP growth"



Evidently getting Britons to spend their assets isn't new. What is new is Osborne's pension reforms. In the Queen's Speech of 2014 Her Majesty intoned Tory policy as is her duty:

"People aged 55 and over with defined contribution pensions will be able to withdraw their savings as they wish, subject to marginal rates of income tax and scheme rules. No-one will be required to buy a guaranteed lifetime annuity with their pension pot and all other existing restrictions on accessing entitlements will be lifted."
 
People with Defined Benefit (DB) pensions aren't left out, as they can convert their DB pension to a Defined Contribution and then cash it out (though giving up the advantages of a Defined Benefit pension generally makes this a terrible idea). 

We once had little option but to take our pension savings in a dribble over the course of our retirements. Osborne has now given us access to the whole pot in a dollop. The result of all this has been carefully assessed in the 2014 Budget. Tax comes from the flow of money. The HMRC graph below shows a short term tax bonanza, from people cashing in and spending their pensions. Followed by an ongoing trough from people having spent their savings and having to live on less.



Interestingly enough, here is an example where it won't be the poorest who get ripped off. ONS figures show that nearly a quarter of households have no private pension savings at all to be ripped off. Which is not surprising when you consider a report in 2014 by KPMG, the accountancy firm, that stated "The latest figure indicates that 22 percent of employees now earn less than the Living Wage". Living on less than the living wage leaves less than nothing to save in a private pension. 

With the wealthiest able to afford good advice, the juiciest targets for the scammers will be everybody in the upper middle.

To be fair to Osborne, it's not like we weren't getting our pensions ripped off before this reform. The British pensions industry has always ripped us off with high charges and measly investment returns while we save, and with rotten annuities when we retire. David Pitt-Watson, a leading fund manager, said in evidence to Parliament: 

"If today, a typical young Dutch person and a typical young British person were both to save the same amount for their pension; if they were to retire on the same day, and die at the same age, the Dutch person is likely to get a pension which is at least 50% higher than the British one."

However, having been ripped off by the regulated rogues of The City of London, Osborne has opened the gates for us to be ripped off by their equally evil unregulated twins in the boiler rooms.


Following the standard "Smoking Kills" principal of useless advice, providing the government with the "We did warn you!" parachute, The Pensions Regulator provides a seven page booklet. These seven pages of large print and pictures, according to The Pensions Regulator, provide "the best possible protection against scammers".

The booklet helpfully informs you:
"Scammers don’t care whether you’re an inexperienced investor or have never put your money anywhere other than a bank. They will try to flatter, tempt and pressure you into transferring your pension fund into an investment with attractive sounding returns. Once you’ve signed the forms and the transfer has gone through, it’s too late. You’ll probably lose all your savings and end up with nothing but a hefty tax bill. Remember, the only people who benefit from scams are the scammers themselves" 

How true! And it provides a helpful graphic:

And that seven page booklet, according to The Pensions Regulator, is the "best possible protection against scammers". 

Which is probably true if the alternative is relying on regulation by the Financial Conduct Authority (FCA). Regulators in Britain, from OFGEM to the FSA and FCA, have proved to be terrible at protecting Britons from being ripped-off. You will perhaps be no worse off using the seven pages as a scammer swat.

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UK average incomes have finally crawled back to 2007 levels. But not for working households

Fee, KJ and Chris figure it all out...

SOURCE GUARDIAN: Incomes return to 2007 levels, but working-age households remain worse off
The Institute for Fiscal Studies (IFS) said average incomes in 2014-15 are about the same as they were in 2007–08, before the banking crisis triggered a deep recession. The average has been lifted because people over 60 are better off. Their average income is forecast to be 1.8% higher in 2014-15 than in 2007-08, but the average income of 22- to 30-year-olds is estimated to be 7.6% lower than before the financial crisis. While pensioners have been hit badly by the rising cost of energy and food in recent years, they have been helped by measures such as the “triple locking” of the state pension, which guarantees it is raised by a certain amount. Household spending power has risen owing to a big drop in inflation and a steady fall in unemployment, the thinktank said. But the recovery has been slower than after the previous three recessions because incomes have been squeezed by weak wage growth, tax increases and benefit cuts. Andrew Hood, an IFS research economist who co-wrote the report, said: “The young have done much worse than the old, those on higher incomes somewhat worse than those on lower incomes, and those with children better than those without.” The IFS said large falls in real earnings (adjusted for inflation) have had a bigger effect on wealthier households, while poorer households, which tend to spend a bigger share of its income on food and energy costs, have been hit harder by the rising cost of living.

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